Apple Finally Getting Into The Payments Game?

A report surfaced this weekend indicating the tech giant is preparing to make the leap into mobile payments.

According to a report in Friday's Wall Street Journal, Apple is preparing to make it's long-rumored jump into mobile payments.

The report cites anonymous sources who say the tech giant "is laying the groundwork for an expanded mobile-payments service, leveraging its growing base of iPhone and iPad users and the hundreds of millions of credit cards on file through its iTunes stores."

Also per the article:

"Eddy Cue, Apple's iTunes and App Store chief and a key lieutenant of Chief Executive Tim Cook, has met with industry executives to discuss Apple's interest in handling payments for physical goods and services on its devices, according to people familiar with the situation.

In another sign of the company's interest, Apple moved Jennifer Bailey, a longtime executive who was running its online stores, into a new role to build a payment business within the technology giant, three people with knowledge of the move said.

Those people said Apple also spoke to at least five other well-known executives in the payment industry about the position before tapping Ms. Bailey."

This is big -- but hardly shocking -- news. From the moment Apple announced its Passbook app, industry watchers have assumed it was just a matter of time before the company pursued a full-fledged mobile wallet product.

If Apple gets into the mobile payments games, it would certainly get the attention of banks. Payments, with its generally low barrier of entry, is one aspect of financial services that nontraditional companies can compete in pretty easily.

But banks should take heart. Mobile payments, at this point, still require banks to be involved in the transaction. And other hip tech companies -- notably Google and its yet-to-take-off Google Wallet -- haven't exactly disintermediated banks out of the payments landscape.

Further, there have been many surveys released in the past couple of years -- several that we have reported on -- that indicate consumers still trust banks to handle their money as opposed to the likes of Apple, Google, and Amazon.

But, companies such as these have proven to be innovators time and again and their entry into financial services can't be completely dismissed. In 2002, when we were all just "looking things up on the Google," would you have imagined this humble search engine would have become the behemoth it has today?

So while I think it is unlikely Apple will be displacing banks anytime soon (or even if they would want to), given their far-extending reach and brainwashing (I mean, marketing), it's not too hard to imagine a day in the future when we're all sending money from our Apple Bank accounts via our iPad Sevens, which will be operated by our thoughts via the chip implanted in our brains.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

I agree the trust factor matters. Customers still trust banks more than tech companies and one reason could be privacy violations. But as you point out, tech giants like Apple and Google are willing to take risks and have less to lose than banks. Google, especially, would gain access to a customer's transactions and purchases which it could mine and resell to advertisers. The Big Data aspect of payments could be hard for some tech players to resist.

The banks have some leverage in terms of their customer relationships and the trust that they still have over these non-bank organizations. It's just a matter of being willing to take risks, and, by extension, being willing to fail. Google and Apple are willing to fail, and then try again. Banks have so many regulations and constraints that they have to deal with, so it makes sense that they are more risk-averse. Oh yeah, and they're entrusted with their customers' money. So it's hard for a bank to be willing to take the risks and fail a few times before it succeeds. But anyone who is "in it to win it" is going to have to be willing to experiment and fail, because there are already other players in the game who are willing to do that.

Jim, I think your last observation, that "banks need to quickly decide what role they will play in the payments process", is key. The issue is not really whether or not Apple, Google, T-Mobile, the postal service, or any of the other non-traditional competitors that have been in payments news recently, are going to be payments players - obviously they all will be, sooner or later. The issue for banks must be -- are you in or out, and if in, are you in to win? And if so, how are you going to do that?

Can Apple really be the company that makes mobile payments sticky? As you've mentioned, it's hardly a new concept, even Google Wallet is just sitting existing, essentially waiting for the concept to take off. Similarly, what Apple user doesn't have Passbook tucked away that random-apps-I-can't-delete-folder on their device? These mega companies have a lot of indefference to overcome, they aren't (yet) bothering with advertising, and many are still saying they are trying to meet a need in the market that doesn't really exist. Even if Apple succeeds in getting into the game, I do not anticipate its success.

Like Google, Apple can afford to take a long term approach to mobile payments, because they have the money to spend and make up for losses/mistakes. So I would think that Apple would be very interested in this market. It's just a question of when the big tech companies will figure out how to get customers to pay with their phone in-store, not if. And that has nothing to do with the chip implanted in my brain.

Good recap. You are correct when you say that Apple probably won't displace the banking system. I don't think they want to. Unfortunately, the real risk with the potential for Apple to handle payments is that the processor (Apple) has access to payment and buying behavior insight through the transactions that occur. In addition, Apple could establish the primary merchant relationship with the retailer with the rollout of BLE technology. Finally, if payments are made through Apple, who gets the transaction fee (banks won't). In other words, banks would keep the deposits but Apple could get the insight and transaction revenue. Not a very good trade-off. As I stated in my article today (http://bit.ly/1lhdBjr), banks need to quickly decide what role they will play in the payments process (waiting is no longer a good option).

As you say, big news but not surprising. And a prime example of the trend Accenture is tracking in new research I covered today, that digital capabilities are giving businesses the capabilities they need to grow beyond their traditional boundaries. Apple is innovative but a mature company. Its future growth has to come from things other than selling phones & tablets. Offering financial servcies such as payments is a logical next step. http://www.banktech.com/manage...